What changed in this filing

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Item 1. Financial Statements

2024-09-11 compared with 2024-06-12 · 169 added, 85 removed, 289 unchanged (47% of the section changed)

8 unchanged sentences

Total current assets

Property and equipment, net of accumulated depreciation of $ 288,437 and $ 276,446 as of May 4, 2024 and February 3, 2024, respectively

Property and equipment, net of accumulated depreciation of $ 291,466 and $ 276,446 as of August 3, 2024 and February 3, 2024, respectively

Operating lease right of use assets

14 unchanged sentences

Authorized 32,000,000 shares;

16,340,729 shares issued as of May 4, 2024 and 16,354,714 shares issued as of February 3, 2024;

8,536,716 shares outstanding as of May 4, 2024 and 8,550,701 shares outstanding as of February 3, 2024

16,419,356 shares issued as of August 3, 2024 and 16,354,714 shares issued as of February 3, 2024;

8,615,343 shares outstanding as of August 3, 2024 and 8,550,701 shares outstanding as of February 3, 2024

Paid in capital

1 unchanged sentence

Treasury stock, at cost;

7,804,013 shares held as of May 4, 2024 and February 3, 2024

7,804,013 shares held as of August 3, 2024 and February 3, 2024

Total stockholders ’ equity

8 unchanged sentences

Selling, general and administrative expenses

Asset impairment

Loss from operations

6 unchanged sentences

Weighted average number of shares outstanding

Citi Trends, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

Twenty-Six Weeks Ended

Cost of sales (exclusive of depreciation)

Selling, general and administrative expenses

Asset impairment

Loss from operations

Interest income

Interest expense

Loss before income taxes

Income tax benefit

Basic net loss per common share

Diluted net loss per common share

Weighted average number of shares outstanding

See accompanying notes to the condensed consolidated financial statements (unaudited).

2 unchanged sentences

(in thousands)

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Asset impairment

Non-cash operating lease costs

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Balances — May 4, 2024

Vesting of nonvested shares

Issuance of nonvested shares

Issuance of vested shares

Forfeiture of nonvested shares

Stock-based compensation expense

Net share settlement of nonvested shares

Balances — August 3, 2024

Treasury Stock

6 unchanged sentences

Balances — April 29, 2023

Issuance of nonvested shares

Forfeiture of nonvested shares

Stock-based compensation expense

Net share settlement of nonvested shares

Balances — July 29, 2023

See accompanying notes to the condensed consolidated financial statements (unaudited).

1 unchanged sentence

Notes to the Condensed Consolidated Financial Statements (unaudited)

August 3, 2024

Significant Accounting Policies

2 unchanged sentences

and its subsidiary (the “ Company ” ) is a leading specialty value retailer of apparel, accessories and home trends for way less spend primarily for African American and multicultural families.

As of May 4, 2024, the Company operated 599 stores in urban, suburban and rural markets in 33 states.

As of August 3, 2024, the Company operated 597 stores in urban, suburban and rural markets in 33 states.

The condensed consolidated financial statements are prepared in accordance with U.S.

4 unchanged sentences

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the 2023 Form 10-K.

Operating results for the first quarter of 2024 are not necessarily indicative of the results that may be expected for the fiscal year as a result of the seasonality of the business and the current economic uncertainty.

Results of a period shorter than a full year may not be indicative of results expected for the entire year as a result of the seasonality of our business, among other things.

The following contains references to fiscal years 2024 and 2023, which represent fiscal years ending or ended on February 1, 2025 and February 3, 2024, respectively.

11 unchanged sentences

The Company includes as assumed proceeds the amount of compensation cost attributed to future services and not yet recognized.

For the first quarter of 2024 and 2023, there were 272,000 and 102,000 shares of nonvested restricted stock, respectively, excluded from the calculation of diluted earnings per share because of antidilution.

The following table provides the weighted average number of common shares outstanding used to calculate basic earnings per share to the number of common shares and common stock equivalents outstanding used in calculating diluted earnings per share:

For the second quarter of 2024 and 2023, there were 178,000 and 328,000 shares of nonvested restricted stock, respectively, excluded from the calculation of diluted earnings per share because of antidilution.

For the twenty-six weeks ended August 3, 2024 and July 29, 2023, there were 234,000 and 215,000 shares of nonvested restricted stock, respectively, excluded from the calculation of diluted earnings per share because of antidilution.

The following table provides a reconciliation of the weighted average number of common shares outstanding used to calculate basic earnings per share to the number of common shares and common stock equivalents outstanding used in calculating diluted earnings per share:

Thirteen Weeks Ended

April 29, 2023

August 3, 2024

July 29, 2023

Weighted average number of common shares outstanding (basic)

1 unchanged sentence

Weighted average number of common shares and common stock equivalents outstanding (diluted)

Twenty-Six Weeks Ended

August 3, 2024

July 29, 2023

Weighted average number of common shares outstanding (basic)

Incremental shares from assumed vesting of nonvested restricted stock

Weighted average number of common shares and common stock equivalents outstanding (diluted)

Revolving Credit Facility

7 unchanged sentences

Borrowings under the credit facility bear interest (a) for SOFR Loans, at a rate equal to the SOFR Rate plus a SOFR adjustment equal to 0.10 % plus either 1.25 % , 1.50 % or 1.75 % , or (b) for Base Rate Loans, at a rate equal to the highest of (i) the prime rate, (ii) the Federal Funds Rate plus 0.5 % or (iii) the Eurodollar Rate plus 1.0 % , plus, in each case either 0.25 % , 0.50 % or 0.75 % , based in any such case on the average daily availability for borrowings under the facility.

As of May 4, 2024, the Company had no borrowings under the credit facility and $ 1.4 million of letters of credit outstanding.

Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

If there is a change in tax rates, the Company would recognize the impact of such change in income in the period that includes the enactment date.

For the first quarter of 2024, the Company utilized the annual effective tax rate method to calculate income taxes.

For the first quarter of 2023, the Company used the discrete effective tax rate method to determine its tax expense based upon interim period results.

The Company determined that since small changes in estimated ordinary income would result in significant changes in the estimated annual effective tax rate, the annual effective tax rate method would not have provided a reliable estimate for the first quarter of 2023.

As of August 3, 2024, the Company had no borrowings under the credit facility and $ 1.4 million of letters of credit outstanding.

Impairment of Assets

If facts and circumstances indicate that a long-lived asset or operating lease right-of-use asset may be impaired, the carrying value is reviewed.

If this review indicates that the carrying value of the asset will not be recovered as determined based on projected undiscounted cash flows related to the asset over its remaining life, the carrying value of the asset is reduced to its estimated fair value.

In the second quarter of 2024, non-cash impairment expense related to underperforming stores totaled $ 1.3 million, comprised of $ 0.7 million for leasehold improvements and fixtures and equipment, and $ 0.6 million for operating lease right of use assets.

There was no impairment expense in the first twenty-six weeks of 2023.

The provision for income taxes for the interim period in 2024 is based on an estimate of the annual effective tax rate adjusted to reflect the impact of discrete items.

Management judgment is required in projecting ordinary income to estimate the Company ’ s annual effective tax rate.

For the first half of 2023 the Company used the discrete effective tax rate method to determine its tax expense based upon interim period results.

As of August 3, 2024, we had approximately $ 13.7 million in net deferred tax assets (DTA).

At this time, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize these DTAs.

If we are not able to generate sufficient taxable income to realize these DTAs, a substantial valuation allowance to reduce our U.S.

DTAs may be required, which would materially increase our expenses in the period the allowance is recognized and adversely affect our results of operations.

As of August 3, 2024, our net DTA includes approximately $ 9.7 million related to net operating loss (NOL) carryforwards that can be used to offset taxable income in future periods and reduce our income taxes payable in those future periods.

NOL carryforwards may be subject to annual limitations under Internal Revenue Code Section 382 (Section 382) (or comparable provisions of foreign or state law) in the event that certain changes in ownership were to occur.

In addition, tax credit carryforwards may be subject to annual limitations under Internal Revenue Code Section 383 (Section 383).

We are required to evaluate our NOL and tax credit carryforwards and whether certain changes in ownership have occurred as measured under Section 382 that would limit our ability to utilize a portion of our NOL and tax credit carryforwards.

If it is determined that an ownership change has occurred, there may be annual limitations on the use of these NOL and tax credit carryforwards under Sections 382 and 383 (or comparable provisions of foreign or state law).

Commitments and Contingencies

5 unchanged sentences

Such repurchases may be made in the open market, through block trades or through other negotiated transactions.

There were no stock repurchases in the first quarter of fiscal 2024 or the first quarter of fiscal 2023.

At May 4, 2024, $ 50.0 million remained available under the Company ’ s stock repurchase authorization.

There were no stock repurchases in the first half of 2024 or the first half of 2023.

At August 3, 2024, $ 50.0 million remained available under the Company ’ s stock repurchase authorization.

Revenue Recognition

4 unchanged sentences

Sales Returns

The Company allows customers to return merchandise for up to 30 days after the date of sale.

The Company allows customers to return merchandise for up to 30 days after the date of sale subject to certain conditions.

Expected refunds to customers are recorded based on estimated margin using historical return information.

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Thirteen Weeks Ended

Twenty-Six Weeks Ended

Accessories & Beauty

8 unchanged sentences

Thirteen Weeks Ended

April 29, 2023

Twenty-Six Weeks Ended

August 3, 2024

July 29, 2023

August 3, 2024

July 29, 2023

Operating lease cost

2 unchanged sentences

Total lease cost

Future minimum lease payments as of May 4, 2024 are as follows (in thousands):

Future minimum lease payments as of August 3, 2024 are as follows (in thousands):

Remainder of 2024

6 unchanged sentences

Supplemental cash flows and other information related to operating leases are as follows (in thousands, except for weighted average amounts):

Thirteen Weeks Ended

April 29, 2023

Twenty-Six Weeks Ended

August 3, 2024

July 29, 2023

Cash paid for operating leases

2 unchanged sentences

Weighted average discount rate - operating leases

Subsequent Events

As previously disclosed in the Company ’ s Form 8-K filed on May 7, 2024, the Company and Equiniti Trust Company, LLC (the “ Rights Agent ” ) entered into the Second Amendment to the Stockholder Protection Rights Agreement, dated as of May 7, 2024 (the “ Amendment ” ), which amended the Stockholder Protection Rights Agreement, dated as of December 6, 2023, by and between the Company and the Rights Agent, as amended by that certain Amendment to the Stockholder Protection Rights Agreement, dated as of February 28, 2024 (as amended, the “ Rights Agreement ” ).

The Amendment terminated the Rights Agreement by accelerating the expiration time of the Company ’ s preferred share purchase rights (each, a “ Right ” and, collectively, the “ Rights ” ) to 5:00 P.M., New York City time, on May 7, 2024.

At the time of the termination of the Rights Agreement, all of the Rights, which were previously distributed to holders of the Company ’ s issued and outstanding common stock, par value $ 0.01 , pursuant to the Rights Agreement, expired.

In deciding to accelerate the expiration time to May 7, 2024, the Company's Board of Directors determined that an active Rights Agreement is no longer needed to protect stockholder value.

As previously disclosed in the Company ’ s Form 8-K filed on May 31, 2024, the Company ’ s Board of Directors appointed Kenneth D.

Seipel as interim Chief Executive Officer ( “ CEO ” ), effective June 2, 2024.

In connection with the appointment, David Makuen has stepped down as CEO and a member of the Company ’ s Board of Directors.

The Board ’ s independent members will commence a search for a new permanent Chief Executive Officer and plan to retain a nationally recognized executive search firm to support the process.

The Board will consider external candidates, as well as Mr.

Seipel, in the search.

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, “ Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures ” ( “ ASU 2023-07 ” ), which expands reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses.

ASU 2023-07 requires disclosure of (i) significant segment expenses that are regularly provided to the CODM and included within the segment measure of profit or loss, (ii) an amount and description of its composition for other segment items to reconcile to segment profit or loss, and (iii) the title and position of the Company ’ s CODM.

The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments.

The new standard will be effective on a retrospective basis for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the ASU to determine the impact of the amended guidance.

In December 2023, the FASB issued ASU 2023-09, “ Income Taxes (Topic 740):

Improvements to Income Tax Disclosures ” ( “ ASU 2023-09 ” ).

The amendments in ASU 2023-09 require public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction.

The new standard will be effective on a prospective basis for fiscal years beginning after December 15, 2024 and interim periods therein, with early adoption permitted.

The Company is currently evaluating the ASU to determine the impact of the amended guidance.

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations.

24 unchanged sentences

the impact of the cyber disruption we identified on January 14, 2023, including legal, reputational, financial and contractual risks resulting from the disruption, and other risks related to cybersecurity, data privacy and intellectual property;

the results of pending or threatened litigation;

the results of pending or

threatened litigation;

temporary changes in demand due to weather patterns;

11 unchanged sentences

Our high-quality and trend-right merchandise offerings at everyday low prices are designed to appeal to the fashion and trend preferences of value-conscious customers.

As of May 4, 2024, we operated 599 stores in urban, suburban and rural markets in 33 states.

As of August 3, 2024, we operated 597 stores in urban, suburban and rural markets in 33 states.

Uncertainties and Challenges

1 unchanged sentence

We expect that our operations in the short-term will continue to be influenced by general economic conditions, including on-going inflationary pressures, which are particularly impactful to the communities we serve.

Given the macro-economic environment, we expect low-income families to remain under pressure and to tightly manage their discretionary spend through the majority of fiscal 2024.

Given the macro-economic environment, we expect low-income families to remain under pressure and to tightly manage their discretionary spend through the remainder of fiscal 2024.

In addition, we continue to monitor the impacts on our business of unemployment levels, wage inflation, interest rates, inflation rates, housing costs, energy costs, consumer confidence, consumer perception of economic conditions, costs to source our merchandise and supply chain disruptions.

3 unchanged sentences

In addition, sales of clothing are directly impacted by the timing of the seasons to which the clothing relates.

While we have expanded our product offerings to become a one-stop-shop, traffic to our stores is still influenced by weather patterns to some extent.

While we have expanded our product offerings to include more non-apparel goods, traffic to our stores is still influenced by weather patterns to some extent.

Cyber Disruption (January 2023)

As previously disclosed, in January 2023, we experienced a disruption of our back office and distribution center IT systems, (the “ January 2023 cyber disruption ” ).

In the first quarter of fiscal 2023, cyber disruption related costs net of an expected insurance receivable totaled $1.6 million, comprised of incremental inventory processing costs, third-party consulting services and legal counsel.

In the first twenty-six weeks of fiscal 2023, we recognized $1.7 million of costs related to the cyber disruption in Selling, general and administrative expenses on our Statement of Operations.

Several putative class action lawsuits have been filed against the Company and several inquiries have been made to the Company with respect to the January 2023 cyber disruption.

As of May 4, 2024, we had an accrual of $0.7 million for estimated losses in connection with these matters recorded in Accrued expenses on our Balance Sheet.

At August 3, 2024, we had an accrual of $0.7 million for estimated losses in connection with these matters recorded in Accrued expenses on our Balance Sheet.

For additional information regarding these lawsuits, see Note 7 of the Annual Report on Form 10-K for the fiscal year ended February 3, 2024 .

6 unchanged sentences

Fiscal 2024 has a 52-week accounting period and fiscal 2023 had a 53-week accounting period.

This discussion and analysis should be read with the unaudited condensed consolidated financial statements and the notes thereto contained in Part I, Item 1 of this Report.

This discussion and analysis should be read with the unaudited condensed consolidated financial statements and the notes thereto contained in Part 1, Item 1 of this Report.

Results of Operations

1 unchanged sentence

Expenses and, to a greater extent, operating income, vary by quarter.

Results of a period shorter than a full year may not be indicative of results expected for the entire year as a result of the seasonality of our business and the current economic uncertainty.

Results of a period shorter than a full year may not be indicative of results expected for the entire year as a result of the seasonality of our business, among other things.

Key Operating Statistics

1 unchanged sentence

One of the main performance measures we use is comparable store sales growth.

For 2024, we are updating our definition of a comparable store.

In fiscal years following those with 53 fiscal weeks, the prior year period is shifted by one week to compare similar retail calendar weeks.

Additionally, for 2024, we updated our definition of a comparable store.

We now define a comparable store as a store that has been open for at least 14 full consecutive months without closure for more than seven days within the same fiscal month.

Remodeled or relocated stores are considered a comparable store if the selling square footage is not changed significantly, the store is not closed for more than 5 days in any fiscal month and the store remains in the same trade area.

Remodeled or relocated stores are considered comparable stores if the selling square footage is not changed significantly, the store is not closed for more than five days in any fiscal month and the store remains in the same trade area.

This change aligns more with industry standards in regard to measuring “ comp store ” sales performance.

This change is effective for fiscal year 2024 and go forward.

For fiscal year 2024, the definition change results in 6 stores becoming

comparable stores in 2024, which would not have become a comparable store until 2025 under the prior definition.

This change is effective for fiscal year 2024 and forward.

For fiscal year 2024, the definition change results in six stores becoming comparable stores in 2024, which would not have become a comparable store until 2025 under the prior definition.

The revised definition would result in no change to the full year 2023 comparable store sales results of 5.3%.

5 unchanged sentences

Finally, we monitor corporate and distribution center expenses against budgeted amounts.

Thirteen Weeks Ended May 4, 2024 and April 29, 2023

Net sales increased $6.6 million, or 3.7%, to $186.3 million in the first quarter of 2024 from $179.7 million in the first quarter of 2023.

The increase in sales was due to a 3.1% increase in comparable store sales.

Thirteen Weeks Ended August 3, 2024 and July 29, 2023

Sales comparisons for 2024 to the prior year are affected by the shift in the calendar caused by last year having 53 weeks.

Net sales increased $3.0 million, or 1.7%, to $176.6 million in the second quarter of 2024 from $173.6 million in the second quarter of 2023.

The shift in the retail calendar contributed $7.9 million to revenue for the thirteen weeks ended August 3, 2024.

Comparable store sales, on a comparable weeks basis, decreased 1.7%, resulting in a decrease of $3.0 million in sales.

Net store opening and closing activity resulted in a net decrease of $1.9 million in sales.

Cost of Sales (exclusive of depreciation).

Cost of sales (exclusive of depreciation) increased $0.6 million, or 0.5%, to $114.3 million in the first quarter of 2024 from $113.7 million in the first quarter of 2023.

Cost of sales as a percentage of sales decreased to 61.3% in the first quarter of 2024 from 63.3% in the first quarter of 2023.

The change was due to a decrease in freight costs, along with a decrease in markdowns, offset by an increase in shrink expense.

Cost of sales (exclusive of depreciation) increased $14.4 million, or 13.4%, to $121.6 million in the second quarter of 2024 from $107.2 million in the second quarter of 2023.

Cost of sales as a percentage of sales increased to 68.9% in the second quarter of 2024 from 61.8% in the second quarter of 2023.

The 710 basis points increase was driven by an increase of 510 basis points of markdowns (from a strategic inventory reset) and a 220 basis points increase in shrink (driven by physical inventory results and accrual rate adjustment), partially offset by a decrease of 20 basis points in other cost of sales.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses increased $3.4 million, or 4.8%, to $74.2 million in the first quarter of 2024 from $70.8 million in the first quarter of 2023.

The increase was primarily due to a $1.9 million increase in corporate payroll related expense, a $0.7 million increase in store marketing and advertising expense and a $0.9 million increase in store selling expenses.

As a percentage of sales, selling, general and administrative expenses increased to 39.8% in the first quarter of 2024 from 39.4% in the first quarter of 2023.

Selling, general and administrative expenses increased $4.2 million, or 6.1%, to $73.8 million in the second quarter of 2024 from $69.5 million in the second quarter of 2023.

The increase was driven by one-time CEO transition related expenses of $1.4 million, corporate expense (primarily payroll, insurance and professional fees) of $3.8 million, and store selling and advertising expense of $1.0 million, partially offset by lower incentive compensation expense of $2.3 million.

As a percentage of sales, Selling, general and administrative expenses increased to 41.8% in the second quarter of 2024 from 40.1% in the second quarter of 2023, primarily driven by the aforementioned items.

Depreciation.

Depreciation expense increased $0.1 million, or 2.4%, to $4.8 million in the first quarter of 2024 from $4.7 million in the first quarter of 2023.

Income Tax Benefit/Expense.

Income tax benefit was $2.8 million in the first quarter of 2024 compared to a benefit of $1.9 million in the first quarter of 2023.

For the first quarter of 2024, we used the annual effective tax rate to determine income tax expense, and for the first quarter of 2023 we used the discrete effective tax rate method to determine income tax expense based upon interim period results.

Net Income/Loss.

Net loss was $3.4 million in the first quarter of 2024 compared to net loss of $6.6 million in the first quarter of 2023 due to the factors discussed above.

Depreciation expense increased $0.1 million, or 1.6%, to $4.8 million in the second quarter of 2024 from $4.7 million in the second quarter of 2023.

Non-cash impairment expense related to underperforming stores totaled $1.3 million in the second quarter of 2024, comprised of $0.7 million for leasehold improvements and fixtures and equipment, and $0.6 million for operating lease right of use assets.

There was no impairment expense in the second quarter of 2023.

Income Tax Benefit.

Income tax benefit was $6.0 million in the second quarter of 2024 compared to $2.1 million in the second quarter of 2023.

The effective tax rate for the second quarter of 2024 and 2023 was 24.4% and 29.2%, respectively.

The difference is attributable to a higher projected net loss for full year 2024.

Net loss was $18.4 million in the second quarter of 2024 compared to net loss of $5.0 million in the second quarter of 2023 due to the factors discussed above.

Twenty-Six Weeks Ended August 3, 2024 and July 29, 2023

Sales comparisons for 2024 to the prior year are affected by the shift in the retail calendar caused by last year having 53 weeks.

Net sales increased $9.6 million, or 2.7%, to $362.8 million in the first twenty-six weeks of 2024 from $353.2 million in the same period of 2023.

The shift in the retail calendar contributed $10.2 million to revenue for the twenty six weeks ended August 3, 2024.

Comparable store sales, on a comparable weeks basis, increased 0.7%, resulting in an increase of $2.6 million in sales.

Net store opening and closing activity resulted in a net decrease of $3.1 million in sales.

Cost of Sales (exclusive of depreciation).

Cost of sales (exclusive of depreciation) increased $15.0 million, or 6.8%, to $235.9 million in the first twenty-six weeks of 2024 from $220.9 million in the same period of 2023.

Cost of sales as a percentage of sales increased to 65.0% in the first twenty-six weeks of 2024 from 62.5% in the same period of 2023.

The 250 basis points increase was driven by an increase of 180 basis points of markdowns (as mentioned above) and a 180 basis points increase in shrink (as mentioned above), partially offset by a decrease of 80 basis points of freight and a decrease of 20 basis points in other cost of sales.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses increased $7.6 million, or 5.4%, to $148.0 million in the first twenty-six weeks of 2024 from $140.4 million in the same period of 2023.

The increase was primarily driven by one-time CEO transition related expenses of $1.4 million, corporate expenses (primarily payroll, insurance and professional fees) of $5.0 million, and stores selling and advertising expense of $2.5 million, partially offset by lower incentive compensation expense of $1.9 million.

As a percentage of sales, Selling, general and administrative expenses increased to 40.8% in the first twenty-six weeks of 2024 from 39.7% in the first twenty-six weeks of 2023, due to the aforementioned items.

Depreciation.

Depreciation expense increased $0.2 million, or 2.0%, to $9.6 million in the first twenty-six weeks of 2024 from $9.4 million in the same period last year.

Non-cash impairment expense related to underperforming stores totaled $1.3 million in the first twenty-six weeks of 2024, comprised of $0.7 million for leasehold improvements and fixtures and equipment, and $0.6 million for operating lease right of use assets.

There was no impairment expense in the first twenty-six weeks of 2023.

Income Tax Benefit.

Income tax benefit was $8.7 million in the first twenty-six weeks of 2024 compared to $4.0 million in the first twenty-six weeks of 2023.

The effective tax rate for the twenty-six weeks of 2024 and 2023 was 28.5% and 25.3%, respectively.

The difference is attributable to a higher projected net loss for full year 2024.

Net (Loss) Income.

Net loss was $21.8 million in the first twenty-six weeks of 2024 compared to net loss of $11.7 million in the same period of 2023 due to the factors discussed above.

Liquidity and Capital Resources

1 unchanged sentence

Our capital allocation strategy is to maintain adequate liquidity to prioritize investments in opportunities to profitably grow our business and maintain current operations, then to return excess cash to shareholders through our repurchase programs.

Our quarter-end cash and cash equivalents balance was $58.2 million compared to $88.7 million at the end of the first quarter of 2023.

Our quarter-end cash and cash equivalents balance was $59.3 million compared to cash and cash equivalents of $65.8 million at the end of the second quarter last year.

Until required for other purposes, we maintain cash and cash equivalents in deposit or money market accounts.

4 unchanged sentences

and (iv) a revolving credit facility with a $75 million credit commitment.

Our quarter-end inventory balance was $119.0 million, compared with $114.3 million at the end of the first quarter of 2023.

The increase was primarily due to a strategic increase in our average in-store inventory.

Our quarter-end inventory balance was $135.0 million, roughly flat compared to $134.5 million at the end of the second quarter last year.

Capital Expenditures

Capital expenditures in the first quarter of 2024 were $1.6 million, an increase of $0.6 million from the first quarter of 2023 as we invest in more existing store remodels.

We anticipate capital expenditures in fiscal 2024 of approximately $20 million, primarily for opening up to five new stores and remodeling approximately 40 stores, combined with ongoing investments in our systems.

Share Repurchases

We did not repurchase any shares of our common stock in the first quarter of fiscal 2024 or fiscal 2023.

See Part II, Item 2 of this Report and Note 7 to the Financial Statements for more information.

Capital expenditures in the first twenty-six weeks of 2024 were $5.6 million, a decrease of $1.3 million over the first twenty-six weeks of 2023, as we pared back our investments in new stores and remodels.

We anticipate capital expenditures in fiscal 2024 to be approximately $13 million, primarily for opening new stores and remodeling existing stores, combined with ongoing investments in our systems.

Stock Repurchases

We did not repurchase any shares of our common stock in the first twenty-six weeks of fiscal 2024 or fiscal 2023.

See Part II of this Report and Note 8 to the Financial Statements for more information.

Revolving Credit Facility

1 unchanged sentence

Additional details of the credit facility are in Note 4 to the Financial Statements .

At the end of the first quarter of 2024, we had no borrowings under the credit facility and $0.6 million in letters of credit outstanding.

At the end of the second quarter of 2024, we had no borrowings under the credit facility and $1.4 million in letters of credit outstanding.

Cash Flows From Operating Activities .

Net cash used in operating activities was $19.6 million in the first quarter of 2024 compared to cash used of $13.1 million in the first quarter of 2023.

Sources of cash in the first quarter of 2024 resulted from a net loss adjusted for non-cash expenses totaling $11.5 million (compared to a net loss adjusted for non-cash items of $10.5 million in the first quarter of 2023), and a decrease of $11.4 million in inventory (compared to an increase of $8.5 million in 2023).

Significant uses of cash during the first quarter of 2024 included (1) a $28.1 million decrease in accounts payable (compared to an increase of $9.1 million in the first quarter of 2023) due primarily to timing of vendor payments;

and (2) a decrease of $14.5 million in accrued expenses and other long-term liabilities (compared to a decrease of $20.0 million in the first quarter of 2023) due primarily to payments of operating lease liabilities.

Net cash used in operating activities was $14.0 million in the first twenty-six weeks of 2024 compared to $30.0 million in the same period of 2023.

Sources of cash for the first twenty-six weeks of 2024 included net loss adjusted for non-cash expenses totaling $6.6 million (compared to net loss adjusted for non-cash items of $22.2 million in the first twenty-six weeks of 2023).

Significant uses of cash from operating activities in the first twenty-six weeks of 2024 included (1) a $21.9 million decrease in accrued expenses and other long-term liabilities (compared to a $31.2 million decrease in the first twenty-six weeks of 2023) due primarily to payments of operating lease liabilities;

(2) a $6.1 million increase in prepaid and other current assets (compared to a $3.8 million dollar increase in the same period last year);

and (3) a $4.6 million increase in inventory (compared to a $28.7 million increase in the same period last year).

Cash Flows From Investing Activities.

Cash used by investing activities was $1.6 million in the first quarter of 2024 compared to $1.0 million in the first quarter of 2023.

Cash used in the first quarter of 2024 and 2023 consisted of purchases of property and equipment.

Cash used in investing activities was $5.6 million in the first twenty-six weeks of 2024 compared to cash used of $6.9 million in the same period last year.

Cash used in the first twenty-six weeks of fiscal 2024 and fiscal 2023 consisted of purchases of property and equipment.

Cash Flows From Financing Activities.

Cash used in financing activities was $0.3 million in the first quarter of 2024 compared to $0.8 million in the first quarter of 2023.

Cash used in the first quarter of 2024 and 2023 was to settle withholding taxes on the vesting of restricted stock.

Cash used in financing activities was $0.9 million in the first twenty-six weeks of 2024 compared to $0.8 million in the same period last year.

Cash used in the first twenty-six weeks of fiscal 2024 and fiscal 2023 consisted of payments to settle withholding taxes on restricted stock that vested.

Cash Requirements and Commitments

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Historically, we have met these cash requirements using cash flow from operations and short-term trade credit.

As of May 4, 2024, our contractual commitments for operating leases totaled $229.9 million (with $41.1 million due within 12 months).

As of August 3, 2024, our contractual commitments for operating leases totaled $231.9 million (with $49.1 million due within 12 months).

See Note 10 to the Financial Statements for more information regarding lease commitments.

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Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in our market risk during the thirteen weeks ended May 4, 2024 compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended February 3, 2024.

There have been no material changes in our market risk during the twenty-six weeks ended August 3, 2024 compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended February 3, 2024 .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements